Would the government’s decision to increase the home size for middle income group (MIG) under the credit linked subsidy scheme help in clearing unsold stock and reviving demand in the realty sector?

A day before, the Ministry of Housing and Urban Development approved increasing the carpet area in the MIG-I category of CLSS from the existing 90 square metre to up to 120 square metre and increasing the carpet area in respect of MIG II category of CLSS from the existing 110 square metre to up to 150 square metre. The changes are effective from January 1, 2017.

According to builders’ body National Real Estate Development Council (NAREDCO), this move would bring the entire demand for affordable housing under the interest subvention scheme, accounting for almost 96% of the total demand for housing in the country.

Confederation of Real Estate Developers’ Associations of India (CREDAI), another Developer’s body feels the average middle class in smaller towns and cities would now be able to afford bigger and better quality homes than before.

The increase in threshold limit would not only enable the middle income group buyers to avail interest rate subvention under CLSS, but also dilute the impact for the lower strata of the society with lower ticket size and that the subsidies might be more effective, if restricted to EWS/LIG segment in the interest of inclusive goal of housing for all.

Prime minister on December 31 last year had announced the CLSS under the Housing for All 2022 (Urban) for people belonging to the MIG category, valid till the end of December this year. However, the government last month extended the validity of interest subsidy benefit by 15 more months till March 2019.

According to a leading Real Estate Finance Company, the fence sitters specially, who were delaying their home purchase, would now be given a further push.

Builders, meanwhile, would not only enjoy the general uptick in the market that, but would also accelerate the sale of housing units which were earlier missing out on a sizeable portion of the Middle Income Group audience.

Would this decision of government beside helping in clearing unsold stock, also encourage developers to launch new projects?

Real Estate developers building commercial properties, including office blocks and retail malls, are increasingly looking to lease their properties than selling them on outright basis or monetising them through lease rental discounting (LRDs), given the imminent opening up of REIT market in India.

The possibility of better valuation and control through this new option of liquidating their commercial assets is holding back even developers, which have so far stuck to the strategy of either complete or strata monetisation, from selling properties on an outright basis. The office market has been growing steadily since the past few years and we expect the trend to continue. In such times, rental yielding asset owners might want to hold their properties and enjoy better valuations and also list them through REIT rather than monetise them at a go.

However, the launch of the first REIT seems to be at least 2-3 quarters away and the success of initial REITs will decide the fate of this market in India. Realty developers who also used lease rental discounting to monetise their commercial assets along with outright model are now keen to create a portfolio that can be listed under a REIT.

The entire project, including retail and some residential component, is estimated to be completed in the next two years.

Some builders that used to sell offices on outright basis earlier have trimmed their portfolio that is being sold now on expectations of better valuation through REITs later.

In the backdrop of an ongoing transformation in business environment, Indian real estate, especially commercial real estate, is witnessing a robust rise in investment inflow as both foreign and domestic institutional investors are infusing more funds into the sector. Large global institutional investors, including Blackstone Group, Brookfield Asset Management, GIC, Canada Pension Plan Investment Board (CPPIB), Goldman Sachs and Qatar Investment Authority, have already been investing aggressively in this segment over the past few years.

Listing of leased commercial realty portfolios under the real estate investment trusts would provide the liquidity option to these investors in the future.

In addition to this, more funds are eyeing investment and alliance opportunities in the backdrop of recent policy reforms.

While these entities had earlier shown interest in investing in commercial real estate, are they also looking at other realty segments such as residential, retail and hospitality?

Should the Realty Sector particularly the stamp duty be brought within the ambit of GST? According to the Associated Chamber of Commerce and Industry of India, the apex Industry Body, if the realty sector is brought within the ambit of GST it should be along with the stamp duty and moderate rate, and should not add to the cost of housing and construction. Certain Industry experts feel that the inclusion of real estate in the Goods and Services Tax (GST) regime may prove to be a positive move for consumers who will gain from greater transparency, more regulation of the sector and possibly lower price on purchase of new property. Certain others feel that the inclusion of Realty Sector in GST regime, could curb the black money being largely circulated, since the realty sector majorly thrives of unaccounted money. According to certain other experts, Realty Sector witnesses the maximum amount of tax evasion and therefore has to be brought under the indirect taxation regime.

However, would this be a possibility, particularly when the Realty Sector is subject to state levy of taxes rather than the centre, more particularly when the cement is still subject to a levy of 28% GST?

Highway developers would now be rated by the Quality Control India (QCI) based on their performance. Their ratings, which will be dynamic, will be put in public domain.
The idea of giving this task to engage a third party is aimed at ensuring unbiased ratings of the highway builders and developers.

The rankings will be done primarily taking into account the milestones that developers reach for each work awarded to them. If they miss the targets despite having all the clearances and land availability, then their rankings will be low. The contractors can also update their details, which will be verified and will be reflected in the changed rankings.
These rankings will also set the ground for restricting National Highways Authority of India or any other central government agency under the ministry to award any fresh work until the companies improve their performance and achieve milestones.

This is being seen as a better solution than blanket blacklisting or barring highway developers from bidding in new projects.

A few projects awarded under build operate and transfer (BOT) are moving at a snail’s pace and these remain major concerns for NHAI and highways ministry. In the past three years, more projects have been awarded under Engineering Procurement Construction (EPC) model where government foots the entire bill and private players have no risk.

The government could consider relaxing the permanent establishment rules to attract fund managers who manage global investment funds to operate out of India.

India, in 2015, had introduced a special tax regime for offshore fund managers. The government had then said that an offshore fund would not be exposed to Indian tax on its global income just because its fund manager was located in India. In other words, taxation would not be dependent on where the fund manager was sitting -Mumbai, Hong Kong or Singapore. However, the government had put some conditions which the fund managers and foreign investors were required to abide by. Later, in 2016, the Central Board of Direct Taxes (CBDT) announced some leeway for such funds. However, most funds have still stayed away from moving to India, blaming local conditions that they termed as tough.

The issues cited by funds include the requirement to reveal the names of all investors and to make sure that Indian investors don’t have more than 5% of the total money held by the funds.Many big funds have claimed that while they can provide details of direct investors -which are often other funds -they have no visibility of indirect investors.

Typically, funds could have investors comprising global asset managers operating a fund of funds strategy or regulated and discretionary wealth managers allocating a part of the wealth managed by them on behalf of their clients. Asking the eligible funds to confirm indirect participation of resident Indians in such cases is practically impossible; the requirements ought to be limited to direct participants lion investment in the funds.

The intention to put such a condition was tripping. However, tax to curb round-tripping. However, tax experts said those fund managers sitting in India should have an equal ground with those outside.

Are there some issues under Section 9(A) of Income Tax Act which are keeping foreign funds from setting up base in India? The demand has been to relax the norms around the number of employees that the fund has to maintain in India and relax certain other norms around taxation of FPIs (foreign portfolio investors) in India.

The government may be considering offering some flexibility around transfer-pricing provisions, said tax experts. The problem now is that a fund may have tax implication if its manager is found to be charging more than 5% lower or higher than the average fee charged by others. Foreign funds are demanding that the onus here must only be on the fund manager and the funds must be ring-fenced.

Would the fee arrangements be subject to the transfer pricing provisions, since the fund and the fund manager are in any case deemed to be associated enterprises?

It came as a recent piece of news that the legislature was planning to churn out a legislation whereby they could bring in Real Estate under the Umbrella of GST. Have we ever wondered as to what prompted the Financial Minister to state so? According to him, the one sector in India where maximum amount of tax evasion and cash generation takes place is the real estate, which is still outside GST, therefore there is a strong case to bring real estate into GST. How far is this feasible? So far as the realty sector is concerned, under-construction properties are taxed at 12% apart from the Stamp Duty from 4 to 8% and registration charges, and property tax (annual municipal levy) on a property. Before the advent of GST, service tax was applicable at 4.5% on under-construction properties. However, no credit of tax paid on goods namely on VAT and excise duty was allowed to developers. For a completed property, GST is currently not applicable. Apart from the above, the computation of revised sale price is a complex as well as time-consuming task. Developers have to depend upon their contractors to know the VAT and excise duty incidence and have to wait for the project to complete before they know how much price reduction can be done finally. While the incidence would depend upon the type of project, estimates suggest that price reduction, even if done on estimated basis, is unlikely to be sufficient to bridge the gap between GST at 12% and service tax at 4.5%. However, the buyers of under-construction properties to re-negotiate with their developers on how much less amount they will have to pay in the wake of ITC (Input Tax Credit). This means that whatever construction takes place post-GST, the developer can claim ITC which can be passed on to the consumer. But with the imposition of GST on under constructed properties, aren’t the homebuyers reeling towards buying a ready to move in homes as compared to the under constructed ones?
From a consumer’s viewpoint, paying GST and stamp duty for an under-construction property leads to an overall tax outgo of 17-18%, however, a ready-to-move-in project, a consumer would only have to shell out on stamp duty. The Developers would not be able to claim input credit and it would become a cost to them. Consumers who have invested into projects that are almost complete will face the brunt of the new policy on the amount to be paid under GST. As a large part of the construction of their project is over beyond one year, their developer will not be able to claim input credit. Although the government has allowed past one-year to claim credit, a majority of them either have not maintained the requisite documents such as invoices or have incurred the taxes beyond past one year. Wouldn’t complying with the anti-profiteering provision be a huge task? While this is a good principle that can be applied in case of tax saving, if the same is mixed with change in the procurement cost it goes into a grey area. Will it be applied on a project basis, state basis or pan-India basis? Will there be any index for reference?
There is a growing clamour from a large number of states to bring real estate fully under GST. This means that GST should be charged on the sale of completed buildings. Shouldn’t the government either substantially reduce stamp duty or eliminate it so as to not double tax the consumer?

A recent study report of CREDAI, the real estate Developer’s body, revealed that the supply of affordable houses has increased by 27%. What is the factor that contributed towards this sector of housing? The answer is that the initiatives of the government, to boost its flagship programme, has lured many developers to offer its services to lower income and middle income group. Among the new launches, the Mumbai topped the list with a whopping 40% increase in housing supply, followed by Kolkatta and Pune. Mumbai witnessed the highest number of launches, at over 19400 new residential houses until September 2017, out of which affordable housing sector had a share of close to 10000 units registering a rise of 300%, when compared to the previous year. What is the reason for this enhanced growth rate in the affordable housing sector? The key to this is that the implementation of RERA and GST has boosted the confidence of home-buyers, who were swinging in a dilemma to buy a house. The enhanced confidence resulted in many enquiries for the right kind of properties in which witnessed good traction during the current festive season. So would we see more developers investing in this sector?

Thousands of residents living in the new sectors will continue to face connectivity issues, say developers with projects in the new sectors, if a policy intervention addressing issues delaying construction of 24m-wide roads in these sectors (58-118) isn’t taken soon.

According to Master Plan 2031, the 24m approach roads to projects are to be built by the developer/landowner in whose licensed area the road is proposed. However, in many cases, these roads never see light of day as one or more landowners refuse to part with their portions of land for roads.

Multiplicity of ownership causes a major problem in connectivity in new sectors. For instance, in Sector 62, the 24m approach road passes through projects of three developers. Since they are still being built, the developers have not worked on the 24m road, impacting connectivity to other projects in the area.

What is delaying development of sector roads in Gurgoan? Can the developers and state authorities work together for the sake of infrastructure building which would not only benefit those who have already bought into projects in these areas, but also attract new customers?

Mahindra Lifespaces Developers, the real estate and infrastructure development arm of the Mahindra Group, has introduced a new brand of industrial clusters located across India.

Under the new brand ‘ORIGINS by Mahindra World City’, the company’s first two projects will come up in North Chennai and Ahmedabad, with an estimated investment of Rs 600 crores.

The first phase of proposed North Chennai project will have 264 acre development and this is a joint venture between Mahindra World City Developers and Japan’s Sumitomo Corporation. Total size of this project will be 500 acres.

The second project is located near Ahmedabad, with a phase 1 development of 268 acres, and is being developed along with International Finance Corporation (IFC) as a strategic partner. The project’s total size will be up to 350 acre.

Together, these industrial clusters are expected to create direct employment for around 20000 persons and will target companies across the engineering, medical equipment, food processing and logistics sectors, amongst others, Mahindra Lifespaces said in a release.

ORIGINS by Mahindra World City will comprise of industrial clusters spanning 250 – 600 acres, and located in high growth corridors across India. These industrial clusters will enable faster go-to-market for both domestic and global companies by way of clear land titles; plug-and-play infrastructure; in-house expertise in operations and security; and a range of business support services such as warehousing, logistics, banks, food courts, etc.

Mahindra World City’s developments in Chennai and Jaipur together span nearly 4500 acres; house 150 global and domestic companies that have created direct employment for over 45,000 persons; have generated exports exceeding $ 1.75 billion annually, the company added.

With India expected to emerge among the top five manufacturing countries globally, sustainable and future-ready business ecosystems will act as a game-changer for inclusive growth, job creation and productivity enhancement. ORIGINS by Mahindra World City embodies the Mahindra Group’s vision to create world-class urban infrastructure in India.

The Greater Mohali Development Authority is going to develop a residential scheme for Eco City, Phase-III, for which the final notices have been sent for acquisition of land. The authority will acquire 322 acres in six villages for the project in New Chandigarh.

The process has been initiated for the development of New Chandigarh. Now, for developing the residential scheme for Eco City-III, the authorities have issued notices for acquisition of land as per the master plan and will expedite the work on New Chandigarh.

The land acquisition is being done under Section 16 of the Land Acquisition, Rehabilitation and Resettlement (LARR) Act, 2013. The GMADA had also called for objections from farmers before sending the acquisition notices in April and also held an open darbar to redress the problems. The land acquisition collector (LAC) said that there were minor objections, which were settled as per the Rehabilitation and Resettlement (R&R) Policy, 2017.

Under this policy every affected family which alleged that they might lose their earnings after acquisition of said land, which being the only source of their income, will be given Rs 5 lakh as help. Most of the land owners had raised objections regarding losing their daily earnings after the acquisition of the land in the six villages. However, the other objections were of minor nature, which were removed there. The authority then proceeded for issuing the notices for acquisition of land.

Earlier, the GMADA had successfully completed the land acquisition for Eco City-I and II. The scheme launched in 2011 for the allotment of 836 residential plots evoked overwhelming response as approximately 1, 60,000 applications were received. Planned to the south of MDR-B, Eco City Phase-I is being developed on 400 acres, which has been acquired under 100% land pooling, thereby making the farmers as stakeholders without uprooting any farmers.

Development works are on and were likely to be completed by January 2014, but the work was still going on. Development is being carried out by M/s Larsen & Toubro Ltd. The total area under development for the scheme comprises 400 acres and the total project cost of development is Rs 151 crore, of which Rs 50 crores have already been spent on the construction of roads and providing public health, electrical, horticulture services, etc. An additional 450 acres have been acquired for Eco City, Phase-II.